Building projects defy huge cash woe

Forests of cranes don't suit Japan's recession

Until a year ago, the tallest structure I could see from my apartment in Hashimoto, Kanagawa Prefecture, was the neon sign for the local Denny’s. Not any more.

A forest of cranes now rings the site of one of the area’s largest redevelopment projects, a clutch of 32-story apartment buildings that blocks out the sky to the west of Hashimoto Station.

The project has been the subject of puzzled discussion in our car as we drive around its lengthening shadow.

Odd, so the discussion goes, that in the middle of one of the worst economic slumps in Japanese history, the skyline of greater Tokyo is sprouting new buildings like mushrooms on a golf course. The world’s largest metropolis looks more and more like the set from “Blade Runner” than a crumbling urban wasteland.

Where I come from, a recession means something like banks stop lending and firms stop building, because nobody has the money to buy anyway.

So I went into the gleaming sales office that sits beneath the Hashimoto complex and asked Ryotaro Someya of the Kanagawa Public Housing Corp. how he expected to sell almost 4,000 new apartments.

“We don’t have to. They’re already sold,” he said.

“What, all of them?”

“There’s even a waiting list.”

“But there’s a recession?”

“Even in a recession, lots of people have money.”

“Who?”

“Older folk with pension books stuffed with savings earning zero interest. When you have that amount of stagnant savings, investing in an apartment that would have cost twice as much a decade ago is quite attractive.”

Some of the fog clears. Still, this doesn’t explain how projects like this get built in the first place, but Mr. Someya has an answer for this too.

As you would expect in a country where the line between public and private has always been blurred, the state lurks in the background, safer than any bank.

Kanagawa Prefecture and Sagamihara City developed the plan for the Hashimoto complex with a handful of construction giants on land that was once owned by a public corporation, Japan Railways, before its privatization in the mid-1980s.

So much for my part of the world, but what about Tokyo, where the sound of diggers and jackhammers can be heard on a total of about 160 new projects, including 70 new buildings over 100 meters tall? That’s business space for more than 200,000 people.

The most eye-catching projects in the city’s biggest high-rise construction boom since the runup to the 1964 Olympics are the 11.6-hectare Roppongi Hills complex, the massive Shiodome waterfront project near Shinbashi and Tsukiji, and redevelopments around Shinagawa and Tokyo stations.

According to NHK, some 48 Tokyo Domes’ worth of new office space is due to come on the market this year. It’s supposed to be a recession. Play by the rules, Japan!

For enlightenment, I call at the Japan Real Estate Institute, where researcher Kenji Teshima and Waseda professor Takeshi Ohno await with charts and diagrams. I bore them with the same question: How can an economy supposedly going down the tubes build this much?

“These projects were started a long time ago,” says Mr. Teshima. How long ago? “During or even before the bubble.” Explain please.

“Projects of this scale take up to two decades from start to finish, so even in a recession they have to keep going because so much money has already been spent.”

But what was the spur for all this development? The JR privatization, which put huge former nationalized plots onto the market at roughly the same time, so many of these projects began then and will end at the same time too.

That’s why we have a supply boom at the moment. And after years of deflation, plummeting costs of land and building materials are increasing the incentive to build.

Still, a big question lies unanswered. Have either Mr. Ohno or Mr. Teshima ever been to Guangzhou in southern China, I wonder.

There’s a construction boom there too, but the difference is that hundreds of half-completed high-rises are scattered around the city like bad teeth in an otherwise promising smile. The banks pulled out and the money dried up in Guangzhou. What’s the difference in Tokyo?

“In Japan, trust between companies and banks is a huge issue,” says Mr. Ohno. “In a recession, banks don’t simply stop lending or pull out. Banks and firms have built up relations over many years. The system of lending in Japan is much more like project financing than simple profit-or-loss considerations.”

OK, but where’s the guarantee all these new offices and apartments will be bought? Mr. Ohno and Mr. Teshima allow themselves a pair of matching wry smiles.

“This is a big issue at the moment, because there is a glut of office and apartment space,” says Mr. Teshima.

The problem may be greater, however, than simply a real estate glut.

In the 1970s, the government worked hard to move the private sector out of the city to surrounding areas, places like Minato Mirai 21 in Yokohama and Makuhari in Chiba, most of which are still struggling with half-empty buildings. More than 40 percent of office space in Makuhari is still vacant.

Farther afield, things are pretty bad too. In Niigata, there already is a 20 percent office vacancy rate, 15 percent in Kobe and almost 10 percent in Osaka.

So the answer to why Tokyo is building like crazy during its worst postwar slump goes something like this: JR land, government help, falling prices and a fairly unique political economy that takes the sting out of relations between borrower and lender.

But the flip side is that while Tokyo may look like “Blade Runner,” the rest of the country could end up resembling the wasteland outside Mega City 1 in “Judge Dredd.”